Ron Johnson, former CEO of JC Penney who initiated the partnership with MSLO, was counting on Martha to be the centerpiece of JC Penney’s reimagined housewares department. As the retailer struggled under his leadership, he was replaced by the current CEO, Mike Ullman. Unfortunately, Ullman either doesn’t share Johnson’s faith in the Martha brand, or he thinks that the national retailer should be focused elsewhere–or both. The expensive lawsuit that JC Penney’s has been fighting with Macys in a NYC courtroom is almost certainly influencing his decision, as well

So, he has decided to scale back significantly JC Penney’s partnership with Martha. Here’s what’s changing:

– JC Penney’s will discontinue selling products in those categories that prompted the lawsuit from Macys.

– JC Penney’s will sell back its share ($37 million worth!) of MSLO stock purchased as part of the partnership.

– JC Penney’s will no longer have representation on the MSLO Board of Directors

Not great news for Martha and MSLO, where a great portion of revenue is generated by licensing the “Martha Stewart” name. Martha was hopeful that the products offered at JC Penney’s would reach audiences currently unserved by the products sold at Macy’s.

Still, the JC Penney’s partnership will continue, though CEO Ullman seems less devoted to Martha and her products. And the partnership with Macy’s will continue, though Macy’s CEO Terry Lundgren became furious with Martha when she told him of her new relationship with JC Penney’s. Of course, neither CEO would be interested in continuing his partnership with Martha if she and her products were not so popular with the public.

To most following the Martha vs. Macy’s trial, it looks very unlikely that Martha and JC Penney will prevail. In a nutshell: Although Martha’s contract with Macy’s did, in fact, allow for Martha to open stand-alone Martha Stewart stores that offer products in categories–housewares, bedding, bath, and cookware–that would compete with those items offered at Macy’s, the idea that Martha’s “store within a store” actually qualifies as a “stand alone” seems dubious, at best. Ron Johnson, the JC Penney CEO who developed the “store within a store” idea and created the partnership with MSLO, was ousted in April 2013. His predecessor, Mike Ullman, was reappointed to take over the company and has shown little to no enthusiasm for the plan.

Yesterday, reports surfaced that Penney’s was planning to discontinue offering products designed by Martha Stewart in those categories deemed exclusive in Martha’s contract with Macy’s, effectively throwing in the towel to end the ongoing lawsuit. More worrisome are reports that JC Penney was also ending its entire partnership with Martha, and would not be selling any Martha Stewart products, even in categories that did not impinge upon the Martha-Macy’s contract. According to one insider, CEO Ullman has said, “Her designs aren’t that great. They’re not selling, and they’re nothing that your normal Joe Schmoe can’t come up with.”

Further complicating the matter is the fact that, as part of its partnership with MSLO, JC Penney purchased a 16.6-percent stake in MSLO, infusing the cash-strapped company with $38.5 million. Obviously, MSLO would prefer to see their partnership with JC Penney continue. A MSLO spokesperson has released as statement saying, “J.C. Penney remains one of our many retail partners. Our agreement with them is in force, and we have no intention of ending it.”

If JC Penney does end its partnership with Martha, it is expected that MSLO will sue JC Penney to enforce the contract, unless there is specific language in the contract allowing JC Penney to end it at any time. MSLO had projected its merchandising agreement with JC Penney to generate $200 million dollars in much-needed revenue for the company over the next several years. MSLO has become increasingly dependent upon revenue generated through licensing and merchandising agreements, as sales through its magazine divisions have slowed and Martha’s presence on television has diminished. MSLO stock prices sunk when the news of the end of its JC Penney partnership was leaked.

Ullman, a former Penney CEO who returned to the helm in April to repair damage from a disastrously unsuccessful turnaround effort by Johnson, began to broadcast the split with the beleaguered domestic diva to workers in recent weeks, insiders said.

However, Ullman was determined to give Stewart the boot from the get-go, insiders said.

As reported by The Post, Ullman initially reached out to Macy’s CEO Terry Lundgren to settle the lawsuit, which had already gone to trial with dramatic testimony from Lundgren, Johnson and Stewart herself.

Sounds like MarthaHome will launch with offerings carefully selected to comply with those categories Macy’s feels they have the “exclusive” right to sell: specifically, cookware, kitchen utensils, bedding, and bath. Instead MarthaHome will offer Martha Stewart Pantry (pantry and food items) and Martha Stewart Celebrations (paper party items).

Interestingly, the article in Dallas Morning News mentions a new private label called “Everyday” to be offered at JC Penney stores. (The retailer’s brand tagline is “Every Day Matters.”) This new private label is interesting because, of course, “Martha Stewart Everyday” was the name of Martha’s line at Kmart–a line which featured products in those very categories that Martha is now forbidden to sell at other retailers, according to Macy’s interpretation of the contract. It is unclear if MSLO has been involved in the development of the new “Everyday” line at JC Penney–but as long as it’s not sold with Martha’s name on it, it would be considered legal per the Macy’s agreement. It is also unclear if Martha’s contract with Macy’s has language in it to protect any intellectual property that she already owned before entering into her contract with Macy’s, which would leave open the possibility of selling products under the “Martha Stewart Everyday” brand online or through the mail–although not at another retailer.

It is worth nothing that when the Martha Stewart Collection launched at Macy’s in 2007, Martha Stewart Everyday products were still being being sold at Kmart. It wasn’t until the end of 2009 that Martha Stewart Everyday ended its run at Kmart. So, Macy’s didn’t originally have a problem with the duplicate categories being sold at another retailer.

The other legal challenge is a lawsuit Macy’s brought against Martha Stewart Living Omnimedia over its celebrity founder’s participation in the Penney transformation. Lawsuits between Macy’s, Martha Stewart Living and Penney were consolidated last year, and the case goes to trial Feb. 20.

For now, Martha Stewart’s name is on rugs, window coverings and two new lines, Martha Stewart Pantry, a collection of food mixes, and Martha Stewart Celebration, a large selection of paper party products.

The 1,100-store chain also has a new private label called Everyday that includes bed, bath, tabletop, cookware and furniture, categories that Stewart must avoid due to a court order.

Penney plans to open its Martha Stewart shops by Mother’s Day in 536 stores.